Risk On As Optimism Soars – ShareCafeJune 4, 2020
Buoyant investor sentiment
One of the grand themes dominating May was an earlier than expected re-opening of the Australian economy (with restrictions easing in other parts of the world as well) with signs the damage to economies and corporate profits was not as severe as feared.
The other factor feeding general optimism was a continuation of the unprecedented stimulus measures by governments across the globe.
Combined, these factors built a solid foundation under investor confidence.
May ended with the ASX200 at 5755.7, 4.2% higher than the previous month. It even broke through Morgan Stanley’s year-end target of 5,800 on May 28th, when the index ended the day at 5,851 – its highest level since peak crisis.
If seen in US dollar terms, the ASX200 was one of the best performing developed market indices, second only to Japan’s Nikkei 225 (which rose 7.5% month-on-month).
Overall, the index has gained 28.3% since March 23rd although it still remains well below February’s record high of 7162.5.
Globally, Argentina was the strongest performing market, rising 19.8% month-on-month while the S&P500 soared 4.8% over the month. The MSCI ACWI (All Country World Index), which tracks equity market performance throughout the world, was up 4.1%.
Developed markets outshone emerging markets by 4% and globally, IT generated the strongest gains at 7.5%, followed by materials at 6.3%, while energy languished at the bottom rising only 0.5%.
Information Technology: leading the way
IT equally outperformed domestically, up 14.5%, followed by communications, materials, resources and consumer discretionary. Most of the sectors ended the month in the green except for healthcare (-5.3%) and consumer staples (-0.4%).
The strategy team at Morgan Stanley notes sectors that contributed the most to the ASX200’s total performance were materials and financials, adding 1.59 % and 1.27% to the index while healthcare undermined its performance by -0.69%. In terms of individual stocks, BHP Group ((BHP)) was the biggest contributor while CSL ((CSL)) finished at the bottom.
Best performing stocks in the ASX100 were Afterpay ((APT)), Charter Hall Group ((CHC)) and Qube Holdings ((QUB)) while the losers include Incitec Pivot ((IPL)), Alumina ((AWC)) and Unibail-Rodamco Westfield ((URW)).
Small caps have outperformed large caps by 20% since the onset of the crisis, highlights the Morgan Stanley team. This trend continued in May with small caps surging ahead of their larger peers by 6.74%. Here, IVE Group ((IGL)), Southern Cross Media ((SXL)) and Eclipx Group ((ECX)) did well, while Select Harvests ((SHV)), Freedom Food Group ((FNP)) and New Hope Corp ((NHC)) lagged.
Some other stocks that stood out were Saracen Mineral Holdings ((SAR)), Appen ((APX)), Regis Resources ((RRL)), Breville Group ((BRG)) and Fisher & Paykel Healthcare ((FPH)).
JP Morgan analysts note the Australian rebound has been led by cyclicals but believe this is unlikely to continue unless there is an…